Airline Stocks: Austria’s oil-funded rebound

Posted February 5, 2008

"Austrian Airlines Group may have renewed energy in coming years. The Vienna-based airline is expanding services to the Middle East, and it’s using the region’s own money to do it." — Stephanie Grimmett

by Stephanie Grimmett

Baltimore – (TFN): Ah, Vienna, home to Mozart, the Viennese waltz, Schnitzels and the flagging Austrian Airlines Group (AUAV: VSE).

AUAV is not exactly the most famous European airline. It doesn’t have the luxury reputation of British Airways, the cool layover packages of Iceland Air or the well-known corporate image of KLM. In fact, unless you’ve gone on a classical music tour in the last decade, you may never have heard of Austrian Air, but that may soon change.

Like most airlines around the world, Austria’s largest carrier’s had a rough time of it lately, what with 9/11 annihilating international travel for several years and fuel costs taking a larger and larger bite out of profits after travel picked back up.

But Austrian Airlines Group may have renewed energy in coming years. The Vienna-based airline is expanding services to the Middle East, and it’s using the region’s own money to do it.

Austrian Airlines Group received an investment offer from Mohamed Bin Issa Al-Jaber. The Saudi investor, best known through his MBI International corporation, a property development company with luxury hotels, resorts, and major projects with Boeing, Raytheon, the Kingdom of Saudi Arabia and British Aerospace (MBI also produces and distributes foodstuffs throughout the Middle East, Africa, Asia and Europe).

Al-Jaber could invest 150 million euros ($222.4 million) into the airline, which will give Austrian Air enough cash to make its expansion into the Middle East, including a second daily flight to Dubai beginning in November.

Moving foreign employees, tourists and wealthy citizens in and out of the oil-rich nations on the other side of the Mediterranean is a growing business in southern Europe. Expanding into the Middle East will provide more sales in a wealthy and growing region and reduce Austrian Air’s dependence on the decaying European economy.

Austrian Air is taking steps to move further into the Middle East as its European flights continue to lose their profitability.

Al-Jaber’s investment would be a boon for the airline, but it’s contingent on majority control of AUAV staying with a group of investors led by Oesterreichische Industrieholding AG (Austrian Industries Holding) state-assets agency. It’s hard to see the government organization and its buddies giving up control anytime soon, especially when Al-Jaber is offering 150 million euros in cash to keep them in their seats.

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Along with the investment, Austrian Air could work out a strategic partnership with Al-Jaber’s luxury European JJW Hotels & Resorts.

The investment offer shot AUAV stock up 10% in one trading day, a record the airline hasn’t seen since October 2002. But yearly loss on the stock is still around 6.7%, and the airline group is only worth about 498.5 million euros ($739.3 million).

Austrian Airlines Group isn’t a buy, yet. But Al-Jaber could make it one in a few months. I’ll keep you posted on any news that could upgrad AUAV to a buy recommendation (and tell you how to get on the Vienna Stock Exchange, while I’m at it) here at Today’s Financial News.

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